Australia’s inflation rate edged down in July, according to the latest data from the Australian Bureau of Statistics (ABS). The Consumer Price Index (CPI) increased by 3.5% in the year to July, a slight drop from June’s 3.8%.
Key contributors to inflation include housing, food, and transport. Despite the overall decrease, food prices surged by 3.8% over the past year, with fruit and vegetables seeing the most significant increases. Fruit and vegetable prices, in particular, rose by 7.5%, driven by higher costs for items such as strawberries, grapes, broccoli, and cucumbers.
Leigh Merrington, ABS’s acting head of prices statistics, highlighted that underlying inflation, excluding volatile categories like fuel and fresh produce, was 3.7% in July, down from 4.0% in June. The decrease in electricity prices, a result of government rebates, also contributed to the lower overall inflation rate, with electricity costs falling by 5.1%.
However, rising costs in housing remain a pressing issue, with rents and building expenses pushing housing prices up by 4.0% over the past year. Despite some relief from falling electricity prices, the cost of food continues to put significant pressure on household budgets.
CreditorWatch comments, Anneke Thompson, Chief Economist said: “As expected, the monthly CPI figure fell to 3.5 per cent over the year to July 2024, down from 3.8 per cent over the year to June. Trimmed mean and inflation excluding volatile items also slowed over the year to July, although all measures are still above the Reserve Bank of Australia’s upper target limit of 3.0 per cent.
“The goods and services in the CPI basket that recorded consistently strong price increases continue to be those that have low or no sensitivity to interest rate movements. Those items are fruit and vegetables, which rose by 7.5 per cent over the year, a large increase on the month prior and related to poor growing conditions of certain items, tobacco (impacted by government levies), rents, health, education and insurance and financial services. It can be argued that rents are interest rate sensitive, though in the reverse outcome that the RBA wants to achieve – that being higher interest rates result in higher rents as many investors need to pass on mortgage cost increases.
“Overall, today’s figure reflects recent labour force, business and consumer sentiment surveys and CreditorWatch Business Risk Index (BRI) data – continued slowing demand for discretionary goods and services, and an economy still on track for a ‘soft landing’ out of this monetary policy cycle.
“That being said, there are many subtle signs of growing distress among mortgage holders and businesses in Australia. House listings are rising dramatically, particularly in wealthier areas of Sydney and Melbourne, and the average value of invoices held by businesses is half that of what it was this time last year, according to CreditorWatch’s July BRI. The unemployment rate will be watched closely now by the RBA, and any indication that it is rising faster than its forecast may give it the impetus to follow overseas central banks and cut the cash rate before the year is out.”
Josh Gilbert, Market Analyst at eToro said: “Today’s CPI reading reinforces Michele Bullock’s recent hawkish tone, with inflation coming in ahead of expectations. Although this reading isn’t necessarily a reason to panic and shows that inflation is abating, it highlights that the easing of monetary policy isn’t likely to happen in the short term.
Australia remains a standout among global central banks, while the Fed looks set to cut interest rates next month after Jerome Powell’s dovish take last week, Australia is keeping rates at decade highs after hiking at a slower pace. Imminent cuts from the Fed may signal a change in the RBA’s hawkish stance within the next month or two, but that shift will need to be supported by data – and today’s reading won’t exactly have the RBA excited.
The view of a rate cut by year that markets envisage seems optimistic, but data can change very quickly. We’ve witnessed that in the US recently with the big shift in the labour market that saw a swift repricing of cuts, with the potential for a 50bps cut next month on the cards. The RBA will continue to focus on the quarterly numbers that provide them with more insight, and they will get one more reading before the end of the year, but any significant shifts in critical data points, such as unemployment, could move the dial for the RBA’s path.
For now, we see the RBA keeping rates on hold and maintaining its hawkish stance. Michele Bullock has taken a no-nonsense approach in the last month or so, and this reading isn’t going to inspire her with the confidence to change that.”
Luke Fossett, General Manager at GoCardless ANZ said: “Australia’s monthly CPI indicator rose 3.5% in July, down from a 3.8% rise in the 12 months to June. This is above estimates but still a potential sigh of relief for both consumers and small businesses, as it may encourage some much-needed economic movement for Aussie small businesses that have continued to struggle with reduced consumer spending, late payments and rising operational costs.
Yesterday’s ABS data showed that there had been nearly 6,700 more business exits in the past 12 months than the previous year, and an increase in the number of businesses that have transitioned from employing to non-employing, indicating that many small businesses have buckled under the pressure of high interest rates.
Today’s data indicated that the RBA will remain cautious but has concluded its aggressive hiking cycle and is now edging closer to the prospect of a rate cut. This will be welcome news for households struggling to make ends meet but also for SMBs. GoCardless data indicates over half (55%) of Australian business leaders were concerned that the number of late-paying customers would increase over this year due to the rise in the cost of living.
Today’s indication that we are now heading for a rate cut – along with the positive impact of recent stage 3 tax cuts, bodes well for small retailers and businesses providing discretionary goods and services. Relief for consumers ultimately means better times for businesses.”
Ben Thompson, CEO and Chief Economist, Employment Hero said: “While the latest consumer price index data indicates signs of recovery in the fight against inflation, ‘wageflation’ is real. Median wage growth has spiked 8.8% year-on-year compared to the 4.1% reported by the ABS in May, marking a 12-month high, while the average hourly rate has surged to $42.30* according to our data.
The slight change in inflation from 3.8% to 3.5% will be short-lived if factors like unsustainable wage growth increase. While a small increase in paychecks might feel like a welcome addition to the average household, in the long run, it will only result in further pressure placed on businesses already struggling, with 362,893 closures being reported in the past year. This inevitably means more layoffs, higher prices for everyday goods and services that boost inflation, and potentially more rate hikes.
Our data shows interesting comparisons across age brackets too. For example, over 45s experienced 12% annual wage growth contrasted with 18-24s who experienced 5.8% annual wage growth.
This wageflation is a clear wake-up call for leaders to seriously reconsider their approach, especially with businesses shutting their doors at an exit rate of 14%. Combined with the rising cost of employment, such as superannuation which now sits at 11.5%, to the growing cost of compliance, small businesses simply cannot afford to keep carrying the economy.
The labour market is in desperate need of efficiency that uplifts both employees and employers. That begins with wage transparency; giving jobseekers a realistic understanding of their value in the jobs market, while equipping employers with affordable tools to find, hire and manage staff.”
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